IFSCA Clarifies Liquid Net Worth Definition to Standardise Usable Capital Assessment

The International Financial Services Centres Authority (IFSCA) has issued updated norms that standardise the computation of liquid net worth for capital market intermediaries.  

This measure aims to bring uniformity by shifting focus from headline capital to readily usable capital for regulatory compliance. 

Revised Guidelines Tighten Focus on Usable Liquidity 

On December 30, 2025, IFSCA released a circular that outlines clear criteria for assets considered under liquid net worth. Only liquid, deployable assets such as cash, balances with banks, fixed deposits, and government securities are now permitted.  

Items like fixed assets, intangibles, group-level investments, and long-term receivables are excluded. 

The formula set under the revised definition is: Liquid Net Worth = Eligible Liquid Assets – Current Liabilities. This shift is designed to reflect capital that can meet obligations during turbulent market periods, especially under margin or settlement demands. 

Uniform Liquidity Measurement Replaces Varied Interpretations 

Earlier, varied interpretations existed on what qualified as 'liquid', with some intermediaries classifying receivables or collateral as liquid, resulting in inconsistencies in compliance. The new directive eliminates such discretion and ensures all firms adhere to a consistent liquidity measurement standard. 

Read More: RBI Raises Concern Over Commission-Led Costs in Insurance Sector! 

Immediate Impact on Capital Management Practices 

The changes take immediate effect, requiring entities to reassess their balance sheets to determine compliance. Firms closer to minimum net worth thresholds may need to increase holdings in qualifying liquid assets or consider capital infusion. 

Intermediaries reliant on inter-company assets or long-dated receivables are likely to see a compliance impact, while those backed by large banking institutions or governed under similar global norms may be minimally affected. 

Entities with Mixed-Function Operations Need Alignment 

The clarification, although directed at capital market intermediaries, indirectly affects groups combining fund management with execution services. Such entities must ensure consistency in capital adequacy across structures for effective compliance monitoring. 

Conclusion 

IFSCA’s move standardises liquid net worth calculation by eliminating interpretational differences and focusing on deployable assets. The immediate implications are visible for firms with varied asset classification practices, reinforcing regulatory focus on liquidity over headline numbers. 

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